Investment ethics debate continues

While Yale’s $10.7 billion endowment has experienced unprecedented growth over the last decade, success has not erased accusations of unethical investments or the lingering concerns of some over failure to disclose holdings.

With the University preparing to enter its historically troubled labor negotiations, any questionable investment has the potential to become a huge liability for Yale, which must remain extremely conscious of its public image. But University officials have always maintained that increased disclosure and checks on investment managers would have a disastrous effect on the endowment.

While trying to manage the nation’s second-largest endowment, Yale must make many partnerships with different investment groups. Aside from tracking the general trends of the endowment, the Yale Investment Office spends most of its time examining and researching potential partnerships.

One Yale official familiar with the investment process estimated that Yale had partnerships with more than 100 firms, meaning Yale has to rely on the judgment of thousands of investment managers. With so many managers, Yale cannot oversee every deal and investment made on its behalf.

Therefore, Yale’s investment partners are often given full discretion in decisions.

For this reason, the Investment Office spends much of its time researching managers and partners to make sure they are people the University can trust to make ethical decisions.

But even with background checks and extensive research, the size of the endowment means that occasionally shaky deals will occur. With Yale’s high profile and desire to keep a good public image, the occasional deal can become national news.

This week Yale agreed to donate $4 million to create a new national park in Colorado after Colorado politicians and local residents attacked Yale for being a limited partner in a company that planned to tap and sell underground water from a Colorado ranch it had acquired.

After some scientists argued that the plan might cause irreparable environmental damage, Yale’s partner sold the property to the Nature Conservancy, which in turn will sell the property to the federal government. Yale agreed to donate its profit on the deal to the formation of the Great Sand Dunes National Monument and Preserve.

A researcher for Yale’s unions discovered and published information about Yale’s investment in the Colorado ranch on the Yale Insider Web site, which is sponsored by the unions.

While many argue for full or increased disclosure, University officials say this would make it impossible for Yale to be competitive in the market. Not only would other investors not want to be partners with Yale, but rivals might take advantage of Yale’s disclosures and steal opportunities, the Yale official said.

But David Corson-Knowles ’03, who is a member of Yale’s Advisory Committee on Investor Responsibility, said that while the University has real reasons for not disclosing all of its investments, it should find a way to at least disclose controversial ones for ethical and economic reasons.

“It’s not the controversy I fear, but the ethical breaches that may not have been uncovered yet,” Corson-Knowles said. “Nevertheless, there is an economic justification as well, because when things like [the Colorado investment] do come to light, the University stands to lose not just the valor of its name, but also the profits from its ventures, as in this botched water stealing plan.”